PPI rises in line with market expectations

JOHANNESBURG - Producer prices in South Africa increased 5.2percent year on year in December, following a 5.1percent rise in the previous month and in line with market expectations.

Prices in the period advanced faster for coke, petroleum, chemicals, rubber and plastic, which surged 13.5percent compared with 9.9percent in November.

However, prices rose at a softer pace for wood and paper, increasing 6.8percent last month compared with 6.9percent in November.

Kamilla Kaplan, an economist at Investec, said yesterday that in the months ahead the rand would play a key role in stemming cost pressures from global commodity prices.

“There is scope for PPI inflation to moderate this year, should the rand appreciation be sustained, as this would contribute to shielding the economy from imported commodity price inflation.

“In addition, domestic food price inflation at both the manufactured and retail level should remain well contained by the ample national maize supplies,” Kaplan said.

On a monthly basis, producer prices went up 0.6percent after a 0.5percent gain in the prior month, also in line with market expectations.

Yesterday’s PPI print was similar to the December consumer inflation outcome released on Wednesday, the slightly higher rate of inflation was driven by renewed upward fuel price pressures.

The price of petrol increased by 71c a litre and diesel by 60c a litre in December, driven by higher oil prices and a weaker rand exchange rate at the time.

Economists predict that rand strength from mid- December should lower PPI inflation in January and February. The food component of PPI decelerated from 1.9percent in November to 1percent last month.

Statistics South Africa reported yesterday that meat inflation was 13.5percent last month, while electricity prices dropped from 3percent to 1percent and water price inflation remained at 10.5percent.

The annual percentage change in the PPI for agriculture, fishing and forestry was recorded at 6.4percent in December, representing a moderation compared with the 6.9percent recorded in the prior month.

Elize Kruger, an analyst at NKC African Economics, said the significant appreciation in the rand exchange rate since mid-December has still to filter through.

“Producer inflation could moderate again in January and February, but is forecast to trend gradually higher towards end-2018. Average producer inflation is forecast at 5.5percent in 2018 (previously 5.8percent), compared to 4.8percent in 2017,” Kruger said.